Division of debt as a married couple is a common part of the divorce process. Not all debts are divided in this way, however. For example, generally speaking, student loan debt is considered non-marital debt, so that the responsibility for repayment stays with the individual borrower upon divorce. For example, if Husband has $50,000 in student loan debt and Wife has $100,000 in student loan debt, then Husband would be solely responsible for his $50,000 and Wife would be solely responsible for her $100,000 upon divorce. That is, the couple does not split the $150,000 debt down the middle as would generally be the case for marital debts in divorce.
However, many divorcing couples have consolidated their student loan debts, making it often impossible to parse out what portion of the combined debt each individual should be responsible for their own education. The option to consolidate was given from 1993 to 2006, but unfortunately there was no option given by lenders or the Department of Education to separate them (for example, in the event of divorce). This means that the responsibility of the total consolidated debt in divorce will be shared by both people without regard to whether one party borrowed significantly more than the other.
In the example above, if Husband and Wife consolidated their student loan debt, the unfortunate result would likely be that both Wife and Husband would be responsible for about $75,000 of the debt (half of their combined $150,000 debt). Clearly, this is an injustice to Husband. In real life, some couples have experienced far more extreme versions of this situation play out (e.g., imagine a marriage between a surgeon with $150,000 in student loan debt and a social worker with $10,000).
This may soon change. Right now, a bill called the Joint Consolidation Loan Separation Act has just been signed by the President. This will allow divorcing couples the ability to separate their student loans. This could be a particularly large relief to those escaping an abusive marriage. Having to cover the debts of their ex-spouse can feel like they are making concessions when they wish to leave that life completely behind them. Having that added expense can significantly hinder their ability to move forward in a variety of ways.
Sometimes an agreement can made between the parties to proportionally divide payments on the loans. But, even in cases where divorces were amicable, the struggle to keep payments straight can add substantial complexity years after the couple’s union was dissolved. In many instances a voluntary agreement is simply not possible. If the Department of Education can separate the consolidated loans so that, e.g., Wife’s portion and Husband’s portion can be determined, it will help many divorcing borrowers arrive far fairer and more just result. When this option becomes available, borrowers will apply through the Department of Education. Both parties would have to sign to separate the loans. Exceptions are made for those who experienced physical or economic abuse or in cases where the ex-spouse is unable to be reached. In these cases, one borrower can then initiate the process.
At Heimerl & Lammers, we are paying close attention to what is happening with this bill. If you are considering divorce and would like to speak with an attorney, call us for a free consultation at (612) 294-2200.